Cyprus has double taxation
agreements = DTA with most countries. Freedom of establishment in the
European Union is applicable. From a European point of view, NO
commercially equipped business operation is required for approval of a
permanent establishment regarding the tax legislation in Cyprus, and
neither is the proof of active business in Cyprus. The profit tax in
Cyprus amounts to only 10%, irrespective of the amount of profits.
Distributions of profits are not taxed.

Company Formation Cyprus: Corporate Income Tax Corporate

Incomes for all companies are liable for 12,5 % annual Corporate Income
Tax, this is the lowest rate in the EU. An Exemption to this rule are
ship management Companies, who are liable to 4.25% annual Income Tax.
Corporate expenses are tax deductible (Tax is levied on Net Income) with
the exemption of entertainment expenses (hotels, restaurants, bars etc)
for which there is an annual ceiling. Expenses that surpass the ceiling
are not tax deductible. Corporate losses can be brought forward for a
number of years, and thus reducing the tax burden of the following year.
Please also note that corporate profits fall under double taxation –
taxed at the corporate level when the company earns them, and taxed
again in the personal level (Personal Income Tax) when the corporation
distributes its profits as dividends (Under Special Defence Contribution).

Cyprus Limited as Holding: no taxation!

Cyprus Holding (legal form of a Limited company) is not subject to
taxation. In addition to the characteristics of a permanent
establishment according to tax laws, it requires pure holding tasks and
that the shareholders/co-partners perform active operations in their
respective countries and are taxed or that the right of taxation is
utilised, respectively. Example: an entrepreneur has independent
enterprises in the form of limited liability companies in several
countries, i.e. for example, an English Limited, a German GmbH and a
Spanish S.I. All companies carry out active business in their countries
and are subject to tax or the right of taxation is used, respectively.
Now a Cyprus Limited is established, which becomes shareholder in the
foreign companies. The foreign companies’ profits flow tax-free into the
Cyprus Limited. Provided that they are European companies (directive on
parent companies and their subsidiaries in the European Union), no
withholding tax is imposed in the countries of the co-companies. That
means that any profits may be received completely tax-free!

Basic considerations and the way to go

To fulfil a legal solution and benefit from Cyprus low taxes, one should
consider the following key issues. Most countries have laws that
prevent the abuse of incorporation practices, we choose to distance
ourselves from so-called cheap company formation, in which only a
mailbox is established in the foreign country and/or, as part of a
nominee scheme, a person who is not even an attorney or tax adviser
enters into hundreds of nominee relationships. These types of structures
become quickly transparent to local financial authorities and often
result in a disaster for the client.

Company Formation Cyprus: Place of management

If all income earned worldwide is to be taxed in the foreign country, the
requirements for a “permanent establishment” in accordance with the DTA
rules must be fulfilled. This is essentially the “place of management.”
There are several structural options for this purpose:

An attorney/tax adviser in the foreign country
(i.e., in the country of residence of the foreign company), or the
advisory office as a legal entity, acts outwardly (i.e., as a
nominee) as director of the company and hands over all rights and
obligations to the nominator (beneficiary/client) via a nomination
agreement.

The client relocates his main place of residence
to the foreign country and acts as director of the company. In
certain cases, relocation of the “main place of residence” is not
mandatory and requires only a management presence (be advised,
however, that due to “daily business” requirements, this is seldom
possible)

An attorney/tax adviser in the foreign country, or
the advisory office as a legal entity, acts outwardly (as a nominee)
as director of the company, AND the client or his appointee
relocates to the foreign country for certain periods of time to
conduct management activities, in which case both parties possess
only joint signing authority.

In addition to these solutions, there is also the
option of appointing an attorney/tax adviser/employee from the formation
advisory office in the company’s country of residence as General
Manager, i.e., with an employment contract (no nominee relationship) and
a “regular salary.”

The “regular salary” amount must be line with income
levels in the company’s respective country of residency and would need
to be between EUR 600 - EUR 1,800 per month, depending on required
expenses/time.

This internal relationship can be set up such that the
foreign-based General Manager operates only under instruction, or the
client becomes a secondary director, in which case both parties possess
only joint signing authority. In special cases, “internal agreements”
may be established in which the foreign-based General Manager “reduces”
a part of his salary, if necessary and advisable.

As a matter of course, the foreign-based General
Manager declares his income when submitting his tax return and pays wage
taxes and/or social security contributions in accordance with the laws
of his country of residence. The foreign-based General Manager's income
is considered part of the foreign company's expenses and is
correspondingly deductible.

In many countries (also Cyprus), a legal entity may be
appointed as the General Manager, which is often more useful for both
sides. In these cases, a General Manager's Contract is signed between
the foreign company and the "Director’s Limited Company.” No nominee
relationships come into play in this scenario.

These laws may be circumvented by establishing in the
foreign country a production site, a mine, a quarry or any other site
for the extraction of natural resources or by conducting construction or
installation activities over a period longer than 12 months. In
accordance with Article 5 of the DTA, these are then considered
permanent establishments in the foreign country, regardless of the
company director’s identity or country of origin.

Company Formation Cyprus:
Regular Place of Business in the foreign country

A “mailbox” is never considered an ordinary place of
business in the foreign country. Rather, the company in the foreign
country must be reachable by mail, including certified mail, and by
phone. The minimum requirements include a deliverable postal address (including
for certified mail), accessibility by telephone during normal business
hours, accessibility by fax. So-called “Registered Offices” are
generally not sufficient, as these are readily apparent to local
financial authorities, or the foreign company’s country of residence
may deny the issuance of a tax ID number (for example, in the UK). Along
with Registered Offices, we offer so-called "Head Office solutions" that
provide credible documentation for an ordinary place of business in the
foreign country.

Company Formation Cyprus:
Our services

Aligning to the marks set above, we offer the
following services on Cyprus:

Name check of proposed company name and its
reservation

all official, legal and other fees accruing during
the process of incorporation

preparation of Memorandum and Articles

generation of one complete set of corporate
documents and certified translations

Formation of the corporation, entry in the
commercial register

provision of registered address as per local legal
requirement for the first year

provision of secretary of company for the first
year

Establishment of an ordinary place of business

One (1) Company Rubber Stamp

Share Certificates

Power Of Attorney for 1 (one) year with apostil

Upon request: Establishment of a nominee director
in the company’s country of residence, or a permanent director.
Characteristics: Competent, multi-language trustee director,
resident of Cyprus, active in the name of the company in a moderate
scope (signing of business documents etc. in the name of the company
incl. delivery, acting in the name of the company with third parties
etc., signing of decisions of the board). Trustee director agreement
included.

Upon request: Establishment of a nominee
shareholder or bearer stock, if permitted by the respective country

New bank account setup in the name of the company
with a bank in Nicosia, Cyprus, with VISA Card and Internet Banking
facilities – the client (or any person he determines) will be the
only signatory of the account